Mexico: Activity growth in the manufacturing sector moderates in December
January 2, 2018
A decline in December in the seasonally-adjusted manufacturing indicator produced by the Mexican Institute of Financial Executives (IMEF) suggests that the Mexican economy closed the year on a soft note. The indicator eased to 51.7 in December from 52.6 in November, marking the weakest figure since July. Nonetheless, the index remains above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has now been for seven consecutive months.
The drop in the headline figure, however, masked some positive results: New orders actually came in at the strongest print in more than three years in December, and manufacturing output continued to grow at a largely robust clip in the same month. Nevertheless, upbeat dynamics in these components were offset by weaker figures elsewhere. Employment growth contracted for the first time since April in December, in line with other labor data which points to unemployment having bottomed out in Q3. Similarly, supplier delivery times also shrank in December. The largest decline was given by inventories, which decreased following strong growth in November.
An alternative indicator that gauges the performance of the manufacturing sector also showed some weakening in operating conditions at the close of the year. The manufacturing Purchasing Managers’ Index (PMI) produced by IHS Markit slipped to 51.7 in December from 52.4 in the previous month. Despite the dip, the index remains above the 50-point threshold that separates expansion from contraction in the manufacturing sector.
New order growth continued to buttress momentum in the manufacturing sector in December, although the solid pace at which new demand increased was softer compared with the previous month. Healthy demand led to a new increase in output, despite also easing from the previous month in December. Unlike in the IMEF report, the employment index did not dip below 50 as firms responded to higher output and demand with increases in their capacity. That said, the rate at which payrolls grew was marginal and softer than in November. Regarding prices, a weak peso contributed to a sharp increase in input costs, while firms struggled to pass these costs onto consumers due to fierce competition.
The 12-month business outlook reported by Markit weakened to a near one-year low in December. Aashna Dodhia, Economist at IHS Markit, comments on this:
“A number of panelists indicated that uncertainty regarding the strength of the economy and the outcome of the presidential election next year had dampened sentiment. Furthermore, other indicators suggest that weak consumption alongside tight fiscal and monetary policy add to expectations that the economy is headed for a weak start in 2018.”
Author: David Ampudia, Economist